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Budget - Brightline Test for Property Investors

Published in: Commercial e.Speaking | Issue #40

This year’s Budget, delivered on 21 May, contained few surprises and, generally speaking, little of significance for business. The Budget did, however, confirm that the government will increase measures to ensure people buying and selling residential property for profit, including overseas buyers, pay their fair share of tax.

The introduction of the ‘bright line’ test is a measure of which all property buyers and sellers should be aware.

The test has been introduced as an addition to the Inland Revenue’s ‘intentions’ test for taxing property sales. The new legislation will aim to target speculators who buy and sell residential property for gains purposes. Put simply, if a property is purchased and sold by the same owner within two years any gains will be subject to tax unless it is an exempt transaction. Exempt transactions include situations where the property is:

  • The seller’s main home
  • Inherited from a deceased estate, or
  • Transferred as part of a relationship property settlement

Land Information New Zealand will collect taxation information for the IRD from property buyers and sellers through its existing survey and title system, Landonline.

If you are looking to sell property and you are unsure of whether the transaction meets the test, talk with us early on so we can organise an historical title search before you enter into a sale and purchase agreement. If you plan to sell property in the near future ensure that settlement and registration are completed before 1 October 2015, when the new legislation comes into force.

It’s important to be aware that if your transaction meets the ‘bright line’ test it’s possible you will be red-flagged by the IRD. The IRD may then choose to audit your previous property transactions to ascertain whether you have adequately declared your income.

Other measures introduced with the Budget 2015 include mandatory IRD numbers for all non-residents and New Zealanders who are buying and selling property. In order to obtain a New Zealand IRD number non-residents must supply proof of a New Zealand bank account. Non-resident buyers and sellers will also be required to provide their tax identification number from their home country.

If you would like to read more detail on the Budget 2015 click here

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